Home Depot helps send retail sector aloft

Lowe's, Best Buy, Circuit City clock strong gains

CHICAGO (CBS.MW) - Dow Jones Industrials' component Home Depot took a leading role in pulling the retail sector to the upside Monday while being among the broader market's brightest stocks in an otherwise lackluster trading session.

The Atlanta-based home-improvement retailer, along with its biggest rival, Lowe's, stayed anchored in the plus column amid higher prices on lumber and a host of analyst notes on the two retailers ahead of Lowe's annual analysts meeting next week.

Higher prices on lumber - framing lumber is up 35 percent from last year while plywood has vaulted 117 percent, as noted in last week's Commerce Department report on retail sales - are promising for topline sales and margins, according to analysts. What's more, retail sales are firming and year-over-year comparisons are easing.

Investors are waiting to see what Lowe's will tell them about its plans to grow sales if the housing markets slows considerably; how it will compete against a reinvigorated Home Depot; and what's the impact of the intensifying metro-market competition on Lowe's sales and margins over the next three years.

"Investors should look for more color on how Lowe's intends to compete with Home Depot as Home Depot turns around its business, and second, as Lowe's pushes deeper into Home Depot's metro markets, what is Lowe's strategy going to be to compete for business," Smith Barney analyst Bill Sims said in a note to clients.

In his home-improvement segment report, Banc of America analyst Aram Rubinson said Home Depot is "operating at more optimal levels," not to mention that it's up against negative-6 percent same-store comparisons in the fourth quarter.

"Home Depot stores don't look better because they are cleaned more often," he said. "They look better because...they are being operated better.

"Home Depot is not just a better company than it was last year," he added. "It is a better company than it has been in five years."

Shares of Home Depot
HD, -0.13%
ended the session at $32.78, up $1.19, or nearly 4 percent while Lowe's
LOW, +1.40%
finished at $52.70, up $1.25, or 2.4 percent.

Elsewhere, Best Buy and rival Circuit City completed the session higher ahead of what's expected to be robust earnings reports on both. Best Buy
BBY, -6.71%
closed up $1.23, or 2.4 percent, to $52.17 while Circuit City
CC, -0.47%
surged 6.3 percent, or 65 cents, to $10.90.

Specialty retailers also were part of the march forward as the S&P Retail Index
RLX, +0.00%
rose 1.5 percent to 356.70 amid analyst upgrades and positive economic news. See full story.

Aeropostale
ARO, +15.38%
tacked on $1.19, or nearly 4 percent, to finish at $27.25. Harris Nesbitt analyst John Morris changed his recommendation to "outperform" from "neutral," calling the recent sell-off in the stock a buying opportunity.

"We attribute the pull-back to an uninspiring August (same-store sales) result, coupled with investor skittishness about a difficult October comparison and concerns about under-inventories stores," he said.

However, he sees improvements in the quality of the merchandise, as well as trend-right fall assortments and a bevy of operational changes as pluses for the teen-wear retailer. He called Aeropostale a "winner from back-to-school through holiday."

Wal-Mart
WMT, -0.31%
another Dow component, was higher by 27 cents to $57.75 after reporting that September's same-store sales were on track to reach the high end of its 3 percent to 5 percent growth forecast.

In its weekly call, the world's largest retailer said its biggest sellers last week were girls, infants and toddler apparel, as well as toys, pharmacy and food. Regionally, the East Coast performed the best.

U.S. Bancorp Piper Jaffray analyst Jeff Klinefelter sees sales stepping up for a strong second half.

"Wal-Mart faced tough same-store sales comparisons in the earlier part of this year, but we estimate that sales will accelerate through the second half," he said. "To wit, the company faces a 3.5 percent same-store sales increase in the third quarter and 2.7 percent (gain) in the fourth quarter."

Klinefelter has an "outperform" rating on the stock and a $61 price target.

Big Lots
BLI
shares advanced 19 cents, or 1.1 percent, to $17.37. In its weekly account of same-store sales trends, Big Lots said the results were "on plan" for the second week of September. For the month, Big Lots expects sales to rise in the mid-single digit range with total sales in the high-single digits. The best-performing categories last week were consumables, hardlines and furniture.

Sears Roebuck
S, +0.58%
ended the session higher by 35 cents at $43.87. The Hoffman Estates, Ill.-based retailer said earlier it had bought the Structure brand name from Limited in a deal valued under $10 million. See full story.

Also, Elder-Beerman
EBSC
shares catapulted nearly 13 percent to close at a 52-week high of $8.11 after the department-store retailer said the Bon-Ton stores had upped its proposal to $8 a share. Rival bidder Wright Holdings has until Tuesday to respond. See full story.

On the flipside of all the upside came Footstar, plunging 17 percent, or $1.77, to $8.65 after reporting that it had fired its CEO amid an accounting fraud that will leave it short as much as $34 million. The company said that it will restate its earnings back 51/2 years and told investors to expect a loss in 2002, as well as 2003. It won't be until 2004 that any profit will be on the horizon. See full story.

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